Economists’ view | RBA unlikely to move on rates yet

Australia's economy grew a moderate 0.6 per cent last quarter as a surge in resource exports helped offset a drag from inventories and sluggish consumer spending.

Gross domestic product (GDP) rose 3.1 per cent compared to the fourth quarter of 2011, just above expectations and still well ahead of most of the developed world.

The report did little to change market expectations for steady interest rates in the near term following the Reserve Bank of Australia's (RBA) decision this week to hold at 3 per cent for now.

BRIAN REDICAN, SENIOR ECONOMIST, MACQUARIE BANK

"It came in very close to market expectations and all the growth is driven by net exports in the December quarter. That reflected the big surge in coal and iron ore exports which don't appear to have been continued in the March quarter. That raises a bit of concern. Surprisingly weak consumer spending in Q4, but basically an okay overall number, around about trend growth. But very much dependent on a strong mining sector.

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"I don't think the RBA will pay too much attention to this, this kind of trend-like growth is what the RBA is happy with. Until we get a well-below trend growth number, it's only then that the RBA will sit up and pay attention to it."

MICHAEL BLYTHE, SENIOR ECONOMIST, COMMONWEALTH BANK OF AUSTRALIA

"It's a mixture of factors. It's the growth in the non-retail part of consumer spending, the early recovery in dwelling investment, some ongoing growth and underlying business investment and resources exports is increasingly an important part of the story as well."

"So we start to see the sort of growth transition that the Reserve Bank and others have been talking about, with less directly from the mining story, more from the resource export and the non-mining part of the story, such as residential construction."

"So I think it will be the case for the Reserve Bank sitting back and if those trends continue, the 3 per cent will probably be the low point."

MATTHEW JOHNSON, INTEREST RATE STRATEGIST, UBS

"It's a little weaker than what the RBA had expected. They were looking for a number like 3.5 pct through the year and got 3.1. That's a reason why even after stronger data yesterday, they basically left their domestic assessment unchanged.

"The strength came from the public side as well as net exports that means that gross national expenditure was basically flat on the quarter and that's a bit of a concern. That also explains why inflation is low.

"It's pretty clear that the trend growth in demand has been down. There has been a definite slowdown in the past year.

"When the mining boom ends, the RBA will have to cut rates again. The economy will cope but with lower rates.

"The data doesn't change my view on rates. The RBA will remain on hold with an easing bias. They are unlikely to move rates until the second half of this year if they cut at all."

TOM KENNEDY, ECONOMIST, JP MORGAN

"When we look at the various data points, total public capex was quite strong over the quarter, an increase of 25 per cent, we don't think it will be sustainable in the long term.

"Also we had quite a large boost from trade so when you really look at the domestic picture things are pretty soft for construction, retail sales and household consumption.

"At this stage that's the million dollar question [of whether the economy will be able to cope when the mining investment boom peaks]. Will the remaining sectors of the economy be able to bounce back and fill that gap? In Australia it looks like they might struggle in the short term. Although we've still got a few more quarters before you see the mining peak occur and for that reason we think there is still time for various sectors or the economy to recover and try to fill the void.

MICHAEL TURNER, STRATEGIST, RBC CAPITAL MARKETS

"The drivers were really investment still and with household consumption modest, (and) net exports have added a fair bit each quarter.

"Mining investment is a big chunk of the economy. If that stops growing, which it looks to have, then you've got to rely on other sectors.

"The capex survey suggested that other sectors were modestly improving. There's modest improvement in residential construction but it's very modest so far. It's hard seeing growth getting back up towards trend this year. We think it's more like 2.5 per cent this year.

"It's well below the RBA's forecast for 3.5 per cent for the year ... so growth probably isn't as strong as they thought but we doubt it's enough to shift their one year-, two year-ahead GDP/inflation forecasts, which is what drives policy. So I don't really think the data today is that material in terms of news for the RBA.

"We think they could cut in May or June and today's data hasn't changed that view."